Student health plans

My 28-year old daughter could purchase private coverage with no cap on medical costs or she could join a student program that has a $500,000 per year cap. My wife was told that she could not cancel that insurance contract if she got horribly sick and the cap was in play even if she did not want any money back from them. Are we forced to keep the plan and face the prospect of going over the cap? Have you heard of many circumstances where a $500,000 per year policy was exhausted or is that so rare as not to really worry about?

Befuddled Dad in New York

Dear Befuddled Dad,

Student health policies are in a slightly different realm, as you are finding. The cost of the policy is wrapped together with tuition and is probably pre-paid for the school year. That is why you could not cancel it. Even after the plan is exhausted, you could still benefit from the discounts they have arranged with hospitals and doctors; so keeping it does not hurt you, and could even help you.

The next wrinkle with student health policies is that they have escaped the Affordable Care Act (ACA) rules on annual benefit limits. Under the ACA, private plans’ in 2012 annual benefit limit must be at least $1.25 million; in 2013, it goes to $2.0 million. The $500,000 per year maximum benefit is more generous than many student health programs. There was a case recently of a student exhausting his $200,000 policy when he needed an organ transplant. He tweeted the health insurer, and ultimately the insurer paid another $100,000 beyond his plan’s cap.

It is rare that a person would need more than $500,000 in care in a single year. Even the top one percent of “spenders” received only about $90,000 in medical services per person. Buying the $500,000 cap plan is a gamble, but one that she is very likely to win. If she does become seriously ill, she would be able to buy another policy in New York. The state requires insurers to sell health insurance to all customers, regardless of their health; this is called “guaranteed issue.

Make sure that the student health plan fulfills the requirements to be “creditable coverage”. This means that when she purchases another plan in the future and as long as she does not have any 63-day lapses in coverage, the new plan will cover her pre-existing conditions. If the plan is not creditable coverage, then it is riskier to join it — you don’t know what she might need in the future.